Brown-Forman wins race for Tequila brand Herradura

Published: 23 July, 2008

by Ron EmlerBrown-Forman, which produces Jack Daniel's and Finlandia vodka, has won the battle to purchase Herradura Tequila, its $876 million offer beating off rival bids from Bacardi and Pernod Ricard.

The purchase of Mexico-based Grupo Industrial Herradura for $876 million (about 465 million) will hand Brown-Forman control of Herradura, a super-premium brand of Tequila, and El Jimador, a premium brand that has experienced double-digit growth in the US during the past four years. They will provide a spearhead as Brown Forman seeks to gain further ground in the important Hispanic spirits market. Ownership of the brands will be transferred by the end of the year.

The deal, which requires regulatory approval, also includes New Mix, a Tequila-based cocktail. Other important assets include Tequila production facilities and a sales and significant distribution organisation in Mexico.

Tequila is a growth category, and Mexico is a growth market,' commented one analyst quoted by the Finanacial Times. Opportunities exist to capture margin by eliminating the US distributor and distributing directly in Mexico.'

The distribution company imports and distributes Red Bull and Skyy Vodka, among other brands. Brown-Forman said the purchase would help us advance our business within the growing Hispanic population' in the US as well as expand its share of the US cocktail market.

Casa Herradura, which was founded 136 years ago by the Romo family, is the second-oldest and third-largest Tequila producer in Mexico - after Jose Cuervo, distributed by Diageo, and Sauza, which is now part of Fortune Brands. It had net sales of about $200 million last year.

According to Brown-Forman, the Mexican company exported about 380,000 cases of Herradura last year, of which 70,000 were sold in the US. Almost 1.4 million cases of El Jimador were sold worldwide last year, of which 150,000 went to the US market. The US company said that its purchase of Casa Herradura was expected to be financed with cash and debt, and would dilute corporate earnings for the next three fiscal years.

Having lost the battle for Herradura, both Bacardi and Pernod Ricard will be scouring the market for a significant Tequila brand to fill key holes in their portfolios. New York sources suggest their attentions could turn to Patron Spirits, a Nevada-based producer of rum and Tequila-based products. Analysts suggest any potential purchaser will have to pay up to $2 billion for the company.